ICICI Prudential Life’s Manish Kumar picks 4 themes for subsequent 10 years

NEW DELHI :

Manish Kumar, chief funding officer, ICICI Prudential Life Insurance Company Ltd believes that calling small-caps “dangerous” is probably not applicable. In an interview with Mint, he shared his views on why environmental, social and governance (ESG) funds make sense in a portfolio and the outlook of the realty sector. Edited excerpts:

Can China’s Evergrande disaster be the set off for an enormous correction?

There are just a few drivers for the market over totally different horizons. In the short-term, market valuations could also be pushed by fears—about an impending disaster, Evergrande as an example—liquidity, and short-term earnings. Currently, we now have an atmosphere the place liquidity is ample, earnings have been supportive, earnings expectations are excessive resulting from restoration from covid-19, thus resulting in indices buying and selling at P/E multiples which are increased in contrast with the previous. As a end result, a correction is anticipated by some buyers, which may be very pure. However, on condition that China has a really tight management over its financial system, we consider that the Evergrande disaster might not result in large-scale monetary contagion globally.

Is the realty sector headed for a multi-year bull cycle?

We consider the true property sector is poised to profit within the coming years. The provide aspect has been constantly shrinking for the previous few years and now stock in most markets has come down. Demand within the high seven cities has been steady, with end-users conserving the market buoyant. IT hiring up to now two cycles replicate the rising main demand (new houses) with a lag of two-three quarters and the final three quarters has seen sturdy hiring by IT corporations. Valuations apart, nearly all massive builders now have a superb steadiness sheet and have delivered effectively up to now. Hence, these builders can ramp up shortly.

Has the small-cap area turn into dangerous?

Small-cap shares have finished effectively over the previous one 12 months in opposition to large-caps because the NSE Small Cap 100 Index has outperformed the Nifty 50 Index by about 33% over the one-year interval ending 31 August. However, if we take a look at the identical over an extended interval of 10 years, we discover that Nifty has outperformed the NSE Small Cap 100 Index by about 1.5% on an annualized foundation. The two have moved collectively over longer durations with some lead lag. Therefore, to say small-caps have turn into dangerous is probably not applicable. There could also be a faculty of thought declaring that small-cap indices are buying and selling at increased multiples and are costly and therefore riskier. However, we have to be cognizant that it could be merely due to comparatively smaller protection of those shares in addition to decrease predictability of earnings in some instances. As a section of the market, they throw up some good candidates for future winners and one should continually take a look at this set to establish the identical.

Which theme will dominate the subsequent 10 years?

We consider the next themes will do effectively within the coming decade: The first is BFSI (banking, monetary providers and insurance coverage). Rising per capita revenue and penetration, pushed by digital adoption, with macroeconomic restoration/progress will maintain BFSI in a really advantageous place. Both lending and financial savings/insurance coverage shall see sturdy progress. Second is know-how; covid has accelerated the digital transformation journey of worldwide enterprises. Indian IT gamers will profit from this multi-year tech spending cycle. The steadiness sheet and money circulate traits of high Indian IT corporations are pristine. Digitally enabled companies are right here to remain and shall turn into a key sector within the coming decade. Next is cement; India’s capex and actual property cycle is resuming after a decade of stop-start stagnation. Cement gives a clear play on the capex theme with sturdy steadiness sheets and demonstrated administration execution excellence. Last, we consider that shopper stays an evergreen theme. The market share shift from the unorganized to organized sector offers a profitable long-term alternative.

There continues to be no commonplace definition of what qualifies for ESG. In this context, do ESG funds make sense?

ESG is a really broad time period. However, buyers are arriving at a broad settlement to establish corporations that do higher on the ESG entrance with the assistance of third-party benchmarking and their very own inner frameworks. As a end result, we now have indices now comprising of those comparatively higher ESG corporations. More and extra funds are getting allotted to sustainable investing as a method. Data means that ESG indices have delivered higher returns in contrast with regular indices globally over the previous 10 years. At the tip of 2020, $35.3 trillion belongings globally adopted some form of sustainable investing standards as per the Global Sustainable Investment Alliance (GSIA) estimates. This is more likely to develop additional as the attention improves and extra corporates begin giving ESG the due significance. Therefore, we consider that ESG-focused funds will proceed to do effectively over time.

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